The COVID-19 pandemic is over, and you decide to celebrate by going on a vacation to...

The COVID-19 pandemic is over, and you decide to celebrate by going on a vacation to Japan.

The following quotes are provided by a Foreign Exchange (FX) dealer at the airport.

	BUY	SELL
YEN (Japan)	75	72

a) If you are exchanging 30 000 AUD (Australian Dollars), how many Japanese YEN will you receive?

Show workings and a concluding statement in your response.

b) Upon returning from the Japan, you have 75 000 YEN which you wish to convert back to AUD. How much will you receive?

Show workings and a concluding statement in your response.

c) You are considering starting your own business, which will require importing goods from the Japan. You are quite concerned about the fluctuating exchange rate and the effect it will have on your cash flow. Identify and discuss the features of a FX contract that you can enter into which will address your concerns about the exchange rate.

d) Explain the concept of inflation. Include in your answer how relative inflation rates may impact the exchange rate between the AUD and YEN, by referring to Purchasing Power Parity (PPP) theory.

Expert Solution

jeff jeffy answered 1 year ago

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